Telcos May Avoid Aggressive Participation In 5G Auctions: ICRA

According to a new report by research firm ICRA, telecom companies are likely to avoid aggressive participation in 5G auctions.

Tepid cash-flow generation against elevated debt levels have been a concern for the industry for some years and recent fundraising by the telcos have assuaged these only temporarily, ICRA said.

"Debt coverage indicators remain weak, and in such a scenario, 5G spectrum purchase at high prices, followed by capex for network rollout would add to challenges of the telecom industry, making a case for telcos to wait for development of the ecosystem before joining the 5G auction," Ankit Jain, assistant vice president (corporate ratings), ICRA, said.

The lack of established content and 5G use cases, as well as uncertainty around the capability of subscribers to pay a premium for 5G services further, strengthens the case for telcos to avoid aggressive participation in a 5G auction at this juncture.

Last year, TRAI had come up with recommendations for the auction of more than 8000 MHz of spectrum across all the existing bands, namely, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2500 MHz, along with the 700 MHz band, which went unsold in the October 2016 auctions and a new band, namely, 3300-3600 MHz.

A reserve price, the valuation of the spectrum is Rs. 4.93 lakh crore. Such a high valuation is on account of high reserve prices set for the 5G bands, although the prices for the 700 MHz band have been revised downwards from October 2016 auctions.

Rollout Of 5G Services

Furthermore, the rollout of 5G services is expected to entail heavy capex and a turnaround of the existing infrastructure, including new equipment, fiber rollout and a higher number of towers.

ICRA also pointed out that data consumption is expected to continue to grow with more applications emerging around 5G. The speeds, volumes, and applications would require upgradation of networks from the traditional microwave backhaul or copper-based cell sites to connectivity over fiber as that is more reliable, can carry huge amounts of data at high speeds.

The device ecosystem around 5G is still in nascent stages and the equipment is expensive both for the telcos as well as the subscribers. The applications around these are not fully developed even globally. Thus, in India, subscribers are not expected to pay a premium for higher speeds only, especially at a time when the ARPU for even the basic voice and data services is at a low level and the industry has not been able to generate adequate returns from the 4G services.